eBay's Q4 Listings Well Below Estimates - Jaffray

Piper Jaffray is surprisingly negative on eBay (NASDAQ:EBAY), saying their proprietary count of worldwide eBay listings suggests total Q4 listings of between 578M-590M. These results are between 8%-11% below their 639M listing estimate for the quarter and could potentially be sequentially down in the seasonally strongest quarter (listings were up sequentially 19% in 4Q05 and 17% in 4Q04). While listings were expected to be weaker than in previous years due to the changes to Store listings, with a second sequential quarterly decline, and listings below expectations, estimates are likely to come down.

Assuming firm's range of a listing miss of 8%-11% is accurate, eBay would need a corresponding increase in revenue per listing of 8%-11% in order to match their $1,052M estimate for Q4 auction-based revenue. Firm notes that their estimate for total revenue is near the mid-point of company guidance and $21M below the Street consensus. Without any improvement in revenue per listings, the shortfall could be near $100M.

Current Street consensus estimates for 2008 assume growth accelerating from 21% in 2007 to 22% in 2008, despite the marked slowdown in growth eBay is seeing across its core properties. Considering that slower listings growth indicate that 4Q06 overall growth will likely only be between 21%-23% (down from 42% in 4Q05), PJ believes that expectations of over 20% growth for '07 or '08 are unrealistic. Firm's newly released 2008 revenue estimate of $8,142M is $568M below current Street expectations and assumes 16% growth in 2008.

Maintains UP and $25 tgt.

Notablecalls: Wow! If this is true and the listings have indeed declined THAT much, EBAY shareholders are in for some turbulence. The stock has been standing on shaky ground and I think will continue to trade down in the n-t. I would not be surprised to see a warning from EBAY. Nice piece of research from Piper Jaffray! Actionable call alert!

EBAY 1-yr chart:

Comments

[Madeleine R...:]

I would never discount EBAY and Meg Whitman. Managing transitions from one thing to more than one thing and with old-fashioned price wars threatened by Google, there is only EBAY. We buy, we sell, we love the company. I'm in.

2007 Jan 09 09:44 AM

[Monique E:]

The auction market was at its peak 2 years ago. There are only so many "collectors" of antique and novelty items out there and they have already tapped into ebay. I believe that, while the antique auction market will continue as it has, it has reached it's peak. This is evidenced by the lower list/sales and bids/item ratios. eBay has tried to hang on by their finger-nails to the format that launched on-line sales (auctions) and milked it beyond it's potential. That is one freakin dry cow. A seller of antique items would probably concede that you are getting less traffic and sales than you were 2 years ago. Just too many competitors in the second-hand/collector market. Any growth you may have realized can probably be directly attributed to your own SEO and promotion efforts.

New item sales are the only potential for substantial future on-line sales growth and auctions just don't work well for new items. Well, hell...everyone who has taken entry level economics knows the demand/supply graph and it's pitfalls. Auctions have reached the saturation point. The supply curve made a sharp jump to the right...everybody and their brother is trying to sell on ebay. As a result, prices and sales per listing have dropped substantially. eBay has these figures right in front of them. They go on about the lower list/sales and bids/item ratios as an excuse to raise listing fees. Huh? For some unfathomable reason, supposedly intelligent business people have made the fatal jump of erroneously ASSUMING cause and effect.

Did the Ivy League educated brass at eBay recognize this fundamental shift in purchasing patterns? Did they take advantage of the new opportunity in on-line retail purchasing? Nope. Instead, they tried to force-feed their antiquated view of the on-line market. They have raised fees over and over in order to prop up their growth for their investors and the stock market...but that could only work for so long. They have reached the point where front-end listing fees are too high to make it a viable format for most items. It was a false growth and now it's reached it's zenith and is on the down-turn.

If eBay had gone back to business basics and read the signs they would have realized the potential and managed the store format properly. This is a corporation that had the potential to become THE major on-line shopping mall.....the world's largest collection of stores. They had the name recognition, membership, resources and expertise to become the leader in on-line retail. The whole Express idea could have made them a fortune. How? By charging low front-end fees and higher FVF's on store listings and providing increased exposure for these listings. I don't care if ebay takes 10% of my gross sales if I've priced items with a 40% profit margin. Unfortunately, I'm not going to list them in my ebay store at all if they are going to charge exorbitant up-front listing fees, and provide little market exposure.

Due to the mismanagement of the store format, experienced sellers are opening their off-ebay sites in droves. They have come to realize that growth lies in another direction entirely. Purchase a fantastic shopping cart for a few hundred, find a reliable host for a minimal monthly charge and invest in SEO and Google adwords. You can drive a lot more traffic to your items while substantially reducing your costs.

It is such an old story really. Ten years from now, business schools will be using eBay as a case study in what NOT to do. How did so many supposedly intelligent, well educated business people fall into the basic Business 101 trap of failing to adapt to the marketplace?

...Or did they? Perhaps we should begin to look at the individual gains that have been made by these Executives. They have been able to ride this beautiful ebay wave to substantial personal financial gain. Have you reviewed the incomes and bonuses these people have made by temporarily propping up the ebay stock? Are they personally in ANY fiscal danger from the short-sighted actions taken in directing this Corporation in the way they have? Somehow I think that when eBay takes the huge fall that it is heading for, Meg, Bill and the others will walk away with a golden parachute that we can only envy and will live out their retirement in a style we can only imagine. Perhaps they aren't so blind after all....

2007 Jan 11 12:23 AM